When the COVID-19 pandemic reared its ugly head in 2020, very few of us imagined that three years later, the auto industry chip shortage that it helped cause would still be causing us grief. Driven by a wide-ranging series of factors including increased demand for technology for consumers now homebound, the factory shutdown orders that reduced production for months, worker shortages during the Great Resignation, shipping and supply chain disruptions, and numerous other factors, the auto industry chip shortage is still with us. But what is the state of our industry as we roll forward? Here's a look at the current state of the auto industry chip shortage.
The State of the Auto Industry Chip Shortage
Though the auto industry chip shortage didn't become very apparent until 2021, due to surplus stock that was available until that time as well as economic concerns in "the new normal", it has hung on for a couple of years. Outside of market demand and workforce factors, wafer bottlenecks due to the industry's reliance on legacy 300- and 200-mm wafers are in direct competition with more modern wafer manufacturing. Combined with overseas disasters, such as the Renesas fire, the auto industry chip industry has been rocked onto its heels. Fortunately, there appears to be a light at the end of this (very long) tunnel.
The passage of the CHIPS Act is improving opportunities for chip and semiconductor manufacturers who base their factories in the United States. The bill was helped along with encouragement from the industry, with several industry leaders planning factory construction and expansion projects to facilitate chip production in the United States. However, this isn't the only factor. If it were, we could be waiting several more years through the construction process to begin seeing a change in auto industry chip availability.
Though supply chain disruptions are still causing issues for the auto industry chip shortage, many of the related issues are starting to ease, and it's expected that within the year, it may be back to business as usual for the auto industry. Currently, vehicles are shipping faster than they were in 2021 and 2022, even as the industry continues to come off of its disaster footing. Labor disruptions due to shutdown orders are being resolved, though demand, which had seen a short downturn due to market and economic conditions, is now seeing a slow increase again. Fortunately, the brief slump allowed some chip manufacturers to get closer to catching up and automotive manufacturers to start refilling their supplies, giving us a bit more breathing room in the process.
But what are some of the other factors that are expected to continue impacting chip availability? Much like the automotive film market, the chip market is being impacted by bottlenecks in the supply chain, both in terms of supply of parts and resources as well as shipping manufactured goods ready for market. At the time that the pandemic started, the industry was headed towards a just-in-time inventory replenishment model. The pandemic has shown us that this model does have flaws and that taking a more pragmatic approach to inventory and supply chain issues is required to defend against future shortages. This approach provides an additional buffer against shortages, giving manufacturers the opportunity to look for alternative sources of parts and the ability to retool equipment to keep up with any changes in the market.
Another major factor in the auto industry chip shortage is the focus on electric vehicles, higher levels of technology, and increased connectivity in vehicles that are produced. Initiatives are boosting demand for electric vehicles, including tax credits and legislation that bans the sale of new internal-combustion-engine (ICE) vehicles in just a few short years, pushing the need for additional electronics in these complex vehicles. Even in vehicles that are expected to continue with ICE power, the demand for AI and big data is increasing with the demand for self-driving or semi-autonomous vehicles. At the same time, improved connectivity between drivers, passengers, and the internet is also in demand, from vehicles that better recognize device interaction to connectivity from the vehicle itself.
All of these factors will continue to drive the auto industry chip shortage, but as production increases to match demand, the end is in sight. There's no doubt that the chip shortage will last until 2024, but with the industry and chip manufacturers adapting to the issue, the problem will ease and the wait times will decrease.
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